Australia Considers Arbitrary Price Cap for Class Actions

It’s no secret that the Australian government is concerned about class actions—especially those with potentially high awards. In recent months, a law requiring third-party litigation funders to hold specific licenses came into effect. Disclosure obligations were formalized and may become permanent. Now there is talk of imposing a 30% cap on how much claimants can be charged by funders in collective actions.

Burford Capital explains that it’s very likely that the figures used as the impetus for these changes are being misinterpreted–specifically, data published last month by Professor Vince Morabito regarding Australian class actions.

For example, the study shows that 54 class actions were filed in one year, and 69 filed the next. That seems to suggest that class actions are rising in number. Except that many of the filings happened in a rush before new funder regulations were instituted in August—11 cases were funded in the two days leading up to the deadline. The study also did not control for duplicate class action filings, which are common.

It’s also been suggested that shareholder class actions are up—but in fact, they’re roughly half of what they had been since 2017. Not only that, but the actual number of funded class actions is down as well. Class actions backed by funders were roughly 75% in 2017; that number has fallen to around 46% this year. With that in mind, why focus on funding and class actions?

When using data to dictate public policy, it’s essential that the data is properly interpreted by industry insiders. There’s nothing to support the idea that 30% is the appropriate amount for a funder’s share, nor is there evidence that courts need more power to evaluate and approve or reject funding agreements. Here’s hoping there’s more discussion before an arbitrary, and potentially harmful, regulation is passed.